China Musings #8: How Didi took over Uber China

To most, ride-hailing company Didi is known as “the Uber of China,” a description that conveys the notion of Didi being a mere copycat of Uber. Yet the first time I felt that there was real innovation coming out of China, was the day I got to visit both companies back-to-back.

This was two years ago, and I remember starting the day feeling disdainful towards Didi, “the copycat,” yet sympathetic towards Uber China, “the original.” By the end of the day, my emotions had completely flip-flopped: I was deeply impressed by how Didi was building a ride-hailing experience with the Chinese user in mind, but doubtful about how Uber was trying to take a proven US product and push it into the Chinese market.

As so often, any company’s ability to succeed internationally largely depends on the degree to which they empathize with the needs of the local users. Take Beijing for a example, with 22M citizens it’s among the world’s ten most congested cities (8 Chinese cities in the top 20). From 2002 to 2017, in just 15 years, the number of cars quadrupled (!) from 1.5M to 6M, leading to a wide range of regulations (limited supply of vehicle licenses, exorbitant prices, long wait times, certain days you are not allowed to drive, etc.).

During their war with Uber China, Didi had launched a total of six or seven different services, ranging from carpooling and car rental to inter-city buses – all services that were addressing the actual transportation needs of the Chinese beyond just ride-sharing and thus giving them a perceived and actual edge. Even Didi’s name was empathetic towards the commuting pain that locals felt: in Mandarin it means “beep beep,” like a honking car (note: it also means “little brother”).

Now the truth is that there were other factors at play like for example that Didi was a homegrown company. For Uber, burning $2B in China was a big deal, yet for Didi (and for their investors TenCent and Alibaba), spending $2B to win at home was nothing. For Uber, China was a big opportunity, for Didi it was life or death.

In the end, Didi beat Uber China, and acquired their China business in exchange for $1B and a stake of 17.7%. Since then, Didi has grown to 400M registered users and 4M drivers, and delivers 25M rides a day in 400+ Chinese cities – roughly TWICE as many as Uber and all the other global sharing apps COMBINED. The acquisition further cemented Didi as the planet’s most valuable startup (for now), with a $56B valuation, speeding past Uber, whose most recent round saw its worth fall to just $48B.

Despite Uber’s stake in Didi, the two companies are in a fierce battle on global stage. Didi’s recent acquisition of 99 Taxis in Latin America was a provocation of Uber whose two largest markets are Mexico City and São Paulo. While still loss-making in China, Didi is poised to enter this battle with about $20B raised (more money than any VC-backed startup ever) and cash reserves of $12B.

A personal anecdote: our meeting with Uber China started with their off-the-shelf “from bits to atoms” PR story, and then ended with a picture of four women in miniskirts advertising open roles on their team. What actually did arouse us (non-sexually) was seeing CEO Travis continuously run back and forth hectically. About 18 months later, during my interview with Ofo, its co-founder asked me how Ofo can be successful outside of China, to which I responded with a lot of the aforementioned empathy points while also trashing Uber China. Clearly I had not done my homework, because he was actually an ex-Uber China employee and considered the “rising star” of the organization. He still hired me and we both found out later that he was actually supposed to host us at Uber China that day, but that Travis was in town and had pulled him into meetings.

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China Musings #7: Dealing with Pollution

The first time I experienced the infamous Beijing pollution was during a 2-day layover on my way to North Korea. As we were were leaving Beijing, I remember asking a classmate who had previously lived in Beijing: “if you knew today that those four years of living here were going to shorten your life expectancy by 6 months, would you still do it?” The question led to a lively discussion as we were headed to the airport, yet we never really reached a conclusion.

Little did I know that two years later I would find myself asking the very same question as I go in and out of Beijing. While the overall situation in China has become better (NYT: Four Years After Declaring War on Pollution, China Is Winning – https://nyti.ms/2GhlOll), Beijing still far from being a welcoming and easy place to live – environmentally speaking.

The picture is from two weeks ago during a sandstorm when AQI levels hit 1,200 – which is ranked hazardous (the “green zone” is anything under 50). Eye infected, lungs filled with dust, and just generally feeling shitty. Now I wasn’t going to write a rant about the pollution, but I wanted to share the ways how I have seen people adapt and become creative around this issue. A few anecdotes from my many visits:

• There is a brewery in Beijing that offers a discount on one of their beers depending on how high the AQI level is (the more polluted, the higher the discount).
• I have seen real estate agents offer air purifiers as a way to rent out their properties: “rent this unit and get a complementary XiaoMi air purifier!”
• There are plenty of bars and restaurants that advertise with "we have clean and purified air!" on their internet listings as a way to attract costumers.
• The company I work for recently launched a new line of merchandise products... among them a branded respiratory mask (apparently some restaurant chains sell branded masks too).
• Our employee kitchens have respiratory masks stocked right among all the snacks and drinks (...Snickers, potato chips, respiratory masks....). Ours cost, but other companies offer them as free perks.
• Just as you would expect, some beauty brands have released entire pollution-dedicated product lines like face masks or "Anti-Pollution Emulsion."

While I still don't know the answer to the question I asked my classmate back then, I remain naively optimistic about the regenerative capabilities of my lungs.

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China Musings #6: The American ignorance towards China

The one moment that really stood out to me during today's Senate hearing on Facebook was when Alaska Senator Dan Sullivan asked Zuck about China.

Sullivan: “Mr. Zuckerberg, quite a story, right? Dorm room to the global behemoth that you guys are. Only in America, would you agree with that?”

Zuckerberg: “Senator, mostly in America.”

Sullivan: “You couldn’t — you couldn’t do this in China, right? Or, what you did in 10 years.”

Zuckerberg: “Well — well, Senator, there are — there are some very strong Chinese internet companies.”

Sullivan: “Right but — you’re supposed to answer ‘yes’ to this question. OK, come on, I’m trying to help you, right? I mean, give me a break. You’re in front of a bunch of… the answer is ‘yes,’ OK, so thank you.”

The room erupts in laughter, everyone writes it off as a joke.

But what really strikes me is the arrogance of question and even more the ignorance with which the Senator insists on wanting to hear a Yes. It’s this surreal echo-chamber-esque moment where all the Senators want to feel good that only in the US – and nowhere else in the world – such success story would be possible. He could have equally asked: “aren’t we just fucking amazing and simply better than the rest of the world?”

It reminds me a lot of the many conversations I had with VCs in the Valley after I returned from my first trip to China two years ago. I would ask them: “what’s your China strategy? The most ridiculous answer I got was “oh, we all have WeChat accounts.” But even the best answers weren’t enough (“we are thinking of taking all our partners there on a trip” or “one of our portfolio companies is opening an office in China”).

The US has an arrogance and entitlement problem. And so does Silicon Valley. This notion that “if it’s not from here, it’s no good” (SV) or that “only in the US this could have been the case” (US) are harmfully reinforcing messages that create a massive blind spot which will continue to lead to the long-term decline of both Silicon Valley and the US.

To be clear, the FB success story as we know it is unique and could have only happened in the US. We simply don't know what FB would look like if Zuckerberg had started it in China, but as he pointed out, there are some very strong Chinese tech companies, some of which – take Tencent f.ex. – have even managed to surpass FB in market value and are even more integrated into every-day life.

So no, China would have not spat out the version of FB as we know it today, but if these senators had the slightest idea of what's going on beyond their boarders, they would understand that the US isn't the only place where successful companies can be built.

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China Musings #5: The Starbucks Success Story

In a country in which so much feels foreign, Starbucks has surprisingly turned out to be one of the few places I feel … home. The look and feel is familiar, the menu is well-tested, and the music could be from my own Spotify – it’s my oasis amidst an ocean of uncertainty.

After hearing about the opening of the world’s largest Starbucks store in Shanghai, I put it high on my to-do list (see the pic below). It is a 29,000 square-foot temple staffed by 400 employees – it comes with its own bakery, roastery, augmented reality program, 100+ drink options (including nitrogen-infused tea) and to no surprise, crazy-long lines. This one store alone makes 15x the revenue of the average US store.

Now Starbucks’s story in China is truly one-of-a kind. While other brands had to often retreat (Google pulling its servers, Coke closing its bottling unit, McDonalds selling its business and licensing its brand), Starbucks is one of the few American companies that got China right – by understanding the importance of building long-term relationships, working with the government, and investing heavily.

To give you an idea, every 15 hours Starbucks is opening a new store in China. It has already 3,000 stores in 130+ cities and is planning to open another (!) 5,000 stores over the next four years – creating 10,000 jobs every year. In Shanghai alone there are 600 Starbucks stores, which is 2x of what New York has.

What is so remarkable is the long-term mindset that Starbucks applied to China. The journey started some 20 years ago and had the seemingly insurmountable task of bringing coffee culture to a country famous for its tea.

Over the years, Starbucks has invested heavily, paid significantly higher wages than competitors, offering housing allowances, health care benefits, extending its employee ownership benefits to Chinese workers, and offering critical illness injuries to the parents of their employees. Starbucks is further discussing with the Chinese government the prospect of turning coffee from the Yunnan province into a global coffee brand.

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China Musings #4: When a game takes over life

Wherever I go in China, I see people playing the same game on their phones. Be it security guards, couples over lunch, or kids on the street. While I am zero into mobile gaming, the popularity of this game really blew my mind.

The game is called Honour of Kings and was released by Chinese internet giant Tencent (it’s the same company that runs the social messaging app WeChat which has a staggering 902M daily active users).

Now the game itself has pretty remarkable stats, too: there are 80M daily (!) active users (that’s about 6% of the Chinese population) who play the game an average of six hours a week – with $1.76B of revenue in Q1 of 2018, basically making it the world’s number one mobile game.

The game became so addictively popular, that a Chinese newspaper called it “poison for young people” – which triggered a market cap loss of $14B. Tencent later reacted to the criticism by 1) imposing a daily cap of one hour for kids under 12 and by 2) announcing a lineup of “serious” video games with “positive social value” (traditional culture, and engineering exercises, parent-child interaction, etc.).

Interestingly enough, Tencent recently overtook Facebook as the most valuable Social Networking Company with a market cap of $540B. The kicker in the comparison to Facebook however is the fact that only 18% of Tencent’s revenue comes from advertising, compared to 98% for Facebook. Tencent has plenty of profitable revenue streams, especially at the intersection of gaming and subscriptions. Which only means that there is a lot of revenue upside once it decides to tap more into advertising (WeChat currently shows only one single ad per day in your feed).

The scale of these tech trends in China and the way how they have shaped society is really fascinating.

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Swimming against the tide

Jeffrey Pfeffer, a professor of Organizational Behavior at the Stanford Graduate School of Business and author of "Power – Why Some People Have It and Others Don't," recently wrote about me, trying to illustrate some of his career advice. 

More specifically, he looked at my decision to join a Chinese tech company and compared it with what my alternative would have been: "simply put, Stanford MBA graduates, like many people from all over the world, find themselves doing a) what is sort of expected of them and b) following the crowd – succumbing to the enormous social pressure to do what everyone else is doing. Often following the crowd is wise. But for career success, it almost always is not.

The decision was to turn to China in the pursuit of new professional opportunities. The prospect of competing with 240 classmates for small start-up roles in the Bay Area was depressing to me. So, 10 days after graduation I was sitting on a plane to China – one-way, two bags. No job, no friends, no network, no language, no housing. Simply the aspiration to find a company that is on the verge of going international and the belief that I could help them do that.

I ended up getting a job at Ofo which has pioneered the concept of "dockless bike sharing" with 10 million plus bikes across China, and several hundred thousand bikes overseas. They are about 3 years old and have raised $1.3 billion. As their only non-Chinese employee among a staff of 3,200, I am now building and running their global business development unit – an opportunity I would have never been able to find in the Bay Area."

Jeffrey went on in his article and tried to highlight four pieces of advice: 

1. go where there is less competition (Omid: Chinese companies were surprised to see a foreigner like me offering them help to go global)
2. find a job where you can add unique value (Omid: note that as the only non-Chinese I can help link my company to the rest of the world)
3. be willing to find your own path – and not follow the crowd or do what is expected (Omid: which is something that is already in my DNA); and
4. perhaps most importantly, just like finance teaches there is a trad-off between risk and return in the financial markets, there is a trade-off between risk and return in careers as well. Playing it safe may be – and certainly feels – comfortable. But if you really want to accelerate your career, implementing a higher-variance, riskier strategy is the way to go (Omid: I think there are times where it makes sense to take that risk, and other times where it's better to play safe. Graduating from business school gives you a big safety net, so how far do you dare to jump?).

For me personally, it was the right thing to do. By no means to I want to argue that it's the right thing to do for everyone. If I hadn't lived/worked/studied in the Bay Area for six years prior to my decision, I would have certainly made a different decision. 

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China Musings #3: A picture with an incredible story

One of my favorite words in Chinese is Yuanfen (緣分), meaning "destiny, luck as conditioned by one's past," "natural affinity among friends," or simply "fateful coincidence."

And nothing really encompasses this word more than the story of the picture in my post.

It was taken in 1997 at the Great Wall of China. It shows Jack Ma (the founder of Alibaba) and Jerry Yang (the founder of Yahoo).

Two years before the picture was taken, Jerry Yang had founded Yahoo and had become an internet sensation around the world. As a 10-year old emigrant from Taiwan, Jerry had never visited China, but was invited to do so in 1997. The translator who was assigned to him was a junior staffer at the economic ministry – a guy called Jack Ma.

Jerry still talks about meeting Jack that day and how struck he was by his inquisitiveness. Jack wanted to know everything about Yahoo and the internet – at a time when China had no more than 7M internet users. They connected really well, but didn't stay in touch.

Two years after this encounter, in 1999, Jack Ma went on and founded Alibaba. A few years later, when Jerry heard for the first time about Alibaba and its founder named Jack Ma, he remembered his tour guide who had the same name and wondered whether they would be the same person – which they turned out to be.

Jerry and Jack reconnected, and seven years after their first encounter at the Great Wall, in 2005, Jerry Yang made a $1B investment in Alibaba for 40% of its stake – an investment that would arguably become one of the most lucrative business deals in history when Alibaba grew to become a company with a market cap of $500B+.

Now the full story is much longer and more complex. And as great as the investments sounds, Yahoo actually made some bad decisions along the way (like selling half of its shares back to Alibaba for $13 apiece while the company later IPOed at $90 apiece).

Still, it's fascinating to think that these two men met under such unlikely circumstances and would later become two of the world's most successful internet entrepreneurs.

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China Musings #2: Social Credit in China

Imagine living in a world in which your creditworthiness not only determines your ability to take out loans and at what rates, but where it also determines every aspect of your life: if you can skip the airport line, what type of car you can buy, what profiles you get to see on dating apps, if you will get promoted at work, or what school your children can go to.

Now imagine that this all-encompassing “creditworthiness” is composed of factors like your friends' creditworthiness, the type of books you buy, the diplomas you got, the parking tickets you had to pay, how many hours you play video games at a time, or how much you donated to charity last year.

This world, as futuristic and crazy as it sounds, is happening in China.

All of this is driven by the Chinese government that is looking for new ways to influence social order. So what they do is to loosen regulation and let the large Chinese tech companies experiment with all Black Mirror-style ideas (by way of collecting data through the dominant Chinese "super apps" like WeChat and AliPay).

And while the government doesn't actually have stake-ownership in these companies (at least not yet or not in a significant manner), the tech companies know they have to abide by the government's agenda. So at the end of the day, there is a lot of collaboration between the Chinese government and the tech companies that create the scores (imagine getting caught cheating on the national university application test "gaokao" and then see that impact your credit score in AliPay).

In a world like this you not only obsess over your score and every action of yours that could influence it. Why not unfriend friends who you think have a low score and might drag you down? Or think of this online shop owner two traveled 530 miles to beat up a customer who gave him a negative review and to force her to take it back?). You are also fully exposed to the government and their agenda. An agenda of control under the cover of protection. 

On that note, it's interesting how private players find ways to justify the intrusion on user/citizen privacy. Eric Schmidt famously said in 2009: "If you have something that you don't want anyone to know, maybe you shouldn't be doing it in the first place." and Lucy Peng, the co-founder and CEO of Ant Financial (the company behind AliPay) says that Zhima Credit “will ensure that the bad people in society don’t have a place to go, while good people can move freely and without obstruction.”

And if you thought it starts and ends with a social crediting system, you can't be more wrong. The country already has 170M CCTV cameras in place and will be adding another 400M until 2020 (that's a 2-year span!). Today already you can see the Chinese police wearing glasses that scan faces and matches them with a database of criminals and fugitives.

My post here is nowhere complete in capturing the magnitude of these programs being introduced, but I encourage you to take this as a starting point to learn more about what is happening in China. This article here on a page that tries to interpret Chinese law is a good follow-up read on the topic of credit.

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China Musings #1: Apple's "Three Minutes" Short Movie by Peter Chan

Apple released a short movie for Chinese New Year which has been widely shared in China. There hasn’t been a single dinner this week where the movie didn’t come up in conversation.

For one, it was been entirely shot on an iPhone X and directed by Peter Chan who is a well-known director. For another, the movie touches deeply on cultural and social themes. It serves as a nice way to learn more about Chinese culture (it’s a super nice and touching story, too). The following is my attempt to capture some of the themes.

It foremost touches on the meaning and importance of Chinese New Year, called Chunjie (春节). It’s a long-standing tradition that goes deep through Chinese culture and history. It’s the time when people return home to their families and are willing to take on long journeys (the Nanning to Harbin express takes 6 days). It is much larger than what Christmas is for us – the whole extended family comes together for this. And it’s a 7-day holiday that is much less capitalistic but value-driven (the average employee contract in China offers 5 days of holidays – so this is huge).

• Anecdote #1: I had to wait 42 minutes last night for my Didi since all drivers have returned home.

• Anecdote #2: My photography friends are calling this “high season for roofing” because all construction workers are gone which allows them to climb up tall buildings.

• Anecdote #3: my friend told me her grandma still raises a pig all-year round just for CNY.

• Anecdote #4: The Chinese government has been investing a lot into "soft power" recently. One of the things they want to promote around the world is the celebration of CNY – hoping to make it as big as Christmas or Halloween.

Then there is the train ride which is symbolic for the Chunyun (春運), the epic annual travel season around CNY – the largest mass migration on earth which last year culminated in 3B+ trips taken. What it speaks volumes of is how geographically unbalanced Chinese resources are (economy, talent, education, etc.) and how a lot of the demand for those resources is centered in urban areas where people migrate to for work (25 of the world’s 100 largest cities are in China and the urbanization rate has surpassed 50%). The train ride therefore symbolizes a lot the notion of “from home to hope” and “from poor to rich” as more and more people leave their homes to find better paying jobs and then send money back.

In the meantime, a lot of children have to grow up with relatives back home and barely get to see their parents. The movie further touches on the hard work ethic of Chinese. On that, I recommend reading Mike Moritz's (founder of Sequoia) recent piece in the Financial Times on how the work ethic in Chinese companies far outpaces their US rivals (make sure to also read the backlash his article caused): 

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When reaching out to someone you don't know...

I frequently receive messages and emails from people I don’t know. In most cases they came across my LinkedIn, IG, or FB and summoned up the courage to reach out with questions related to either my job/work/career or regarding my life/photography/the world. 

While responding to these messages always takes time, I make an effort to do so. Simply because I think it takes courage for someone to reach out cold to another person they wish to get advise from. It’s a risky thing to do because you expose yourself to potential rejection (getting a weird or no response).

That said, some messages I get are super thoughtful and responding to them is pure joy because I feel the person is really going to take my advice to heart. Other times, I feel the person is just throwing some questions at me in the hopes of building some sort of relationship – their intention is not clear and the outcome of me spending time to respond is uncertain.

I therefore wanted to share five quick thoughts on how to “reach out better”

1) When you write someone, always have a clear objective. Mention that objective upfront so the context of your outreach becomes clear from the beginning. For example: “Hi X, I am writing you because I am interested in the company you are working in and I hope to ask you a few specific questions that will help me evaluate a job offer."

2) When you reach out to someone and you really don’t a very clear objective but just really hope to get to know that person, just say it. The other day I reached out to a partner at a leading VC firm in the Valley. My goal was to connect with him over his China experience, but since I didn’t feel my intention was strong enough, I added that “..I also really just want to meet you in person because I admire your career path and the work you are doing." 

3) Be very specific in your email. The other day someone wrote me with very generic questions along the lines of: "can you share more about the culture at your company?” I didn’t know that person, that person was not applying to any role, and I just couldn’t make sense of why I should be spending 10+ minutes typing a vague response to an even vaguer question. Again, be very specific: "I have the following five questions for you (list them!) and I think I can have them answered with 15 minutes of your time. Would you have time you for a quick call?”

4) When someone took the time and responded to you, or jumped on a call to help you out, always (!) make sure to circle back with that person to let them know what the outcome was. There are so many people I talked to about their business school applications, but very few ever got back to me to share what happened in the end. If you ask for advice, make sure to close the loop later on. I think it’s a matter of respect. 

5) And here is a tip for warm intros. I sometimes have friends who intro someone to me without asking me first. And basically what they are doing is committing 30-60 minutes of my time, unknowing of whether I even see myself capable of helping that person. I find these intros well-intended but rude, and I encourage you to always make sure that whatever contact of yours you are asking for an intro to a target person, that you ask your contact to check with your target person first if they are open to an intro. 

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